Buying a Home Might Be a Bad Idea in These Overvalued Markets

  • The U.S. real estate market continues to show signs of cooling.
  • More and more sellers have been cutting their list prices.
  • Some markets, like Austin and Boise, could be headed for a downturn.
  • Many buyers are wondering if now is a bad time to buy a house.

For the past two years, we’ve heard story after story about how “hot” the housing market was. Home prices were rising at an unprecedented pace. Buyers had to compete fiercely with one another. And many properties ended up selling for more than their original list prices.

But things have changed dramatically since then. The short version is that the real estate market of late summer 2022 is a lot cooler than what we saw during 2021. And that has some buyers questioning whether or not it makes sense to buy a home in late 2022.

Is It Becoming a Bad Time to Buy a Home?

According to a recent report from Realtor.com, roughly 20% of sellers reduced their asking prices during August of 2022. A year ago, only 11% of sellers dropped their list prices. This is just the latest sign that the real estate market is cooling off.

But it’s not just list prices that are coming down lately. In some U.S. cities, home values are also showing signs of weakness. Nationally speaking, prices are expected to continue climbing over the coming months (though probably at a slower pace). At the city and metro level, however, it will be more of a mixed bag.

The bottom line is that some housing markets across the U.S. will likely experience price declines through the end of 2022 and into 2023. As a result of these trends and reports, many would-be home buyers are wondering if now is actually a bad time to buy a house in the U.S.

It’s a valid concern, and one that must be considered at the local level. Housing markets that experienced skyrocketing home prices during the COVID pandemic could be headed for a downturn in 2023. For instance, many analysts expect to see falling prices in places like Austin, Boise, Phoenix and Las Vegas.

Analysts: Beware of Austin, Boise, Charlotte…

While prices could dip in many U.S. cities between now and 2023, a handful of housing markets keep getting singled out. According to some economists and analysts, home prices are most likely to decline in real estate markets like:

  • Austin, Texas
  • Boise, Idaho
  • Charlotte, North Carolina
  • Phoenix, Arizona
  • Las Vegas, Nevada

These markets have several things in common. For one thing, they all become housing hotspots during the COVID pandemic. (“Pandemic boomtowns,” some have called them.) Many buyers flocked to these metro areas seeking affordable homes, more square footage, more open space, etc.

As a result of this buying frenzy, inventory levels in these markets plummeted while home prices surged to record heights. And all within a short period of time.

But now, all of that appears to be changing. Buyers are starting to pull back in response to higher prices. Houses are taking longer to sell. And inventory levels are starting to bounce back. In short, a cooling trend has emerged.

Not to mention the fact that many of these markets are considered to be overvalued.

According to recent statements from analysts at Moody’s Analytics, Austin, Boise and Charlotte are considered to be the three most overvalued markets in the U.S.

Similarly, a May 2022 report from housing researchers at Florida Atlantic University said that recent home buyers in places like Austin, Boise and Las Vegas “could get burned.” By their estimation, those three real estate markets are overvalued by 60% or more (based on pricing histories and economic fundamentals).

Rick Palacios, director of research at John Burns Real Estate Consulting, said his team expects a significant downturn in the housing market in Austin, Boise, Nashville, Phoenix and Sacramento. “These are some of the markets where we were anticipating the steepest price declines in 2023,” Palacios said. 

Some Buyers Already Regret Their Purchases

While some buyers wonder if late 2022 is a bad time to buy a home, others seem to regret the purchases they’ve already made.

According to a recent online survey conducted by Clever Real Estate, 72% of buyers who purchased a house during 2021 or 2022 said they regretted doing so. Among those with regrets, a significant number said they believe they spent too much money.

No one can predict future real estate trends with complete accuracy. But we can tell by looking at current trends that the market is changing significantly. Many U.S. cities are showing home-price weakness for the first time in years, partly due to inventory growth and waning demand.

Now more than ever, buyers need to research their local housing markets and consider their long-term plans. With prices expected to fall in some cities and metros, a “wait-and-see” approach might be the best strategy.

Disclaimer: This report contains predictions and other forward-looking views related to the real estate market. They are the equivalent of an educated guess and should be treated as such. The Home Buying Institute makes no claims or assertions about future housing market trends.